BSP chief on IMF emergency loan: ‘Thanks, but no thanks’

This was the stance of the country’s top monetary manager to an emergency cash facility that the International Monetary Fund (IMF) made available to its member-nations recently to help them cope with any capital flight caused by the COVID-19 pandemic.

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In a statement to reporters, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said he “sees no apparent and immediate need to avail” of the so-called Short-term Liquidity Line that the IMF opened last month.

“As I said before, structural reforms and sound economic management have helped the Philippines enter the COVID-19 crisis from a position of strength,” the central bank chief explained.

The IMF’s emergency liquidity scheme is a new borrowing facility to aid members as part of its response to the coronavirus pandemic.

It is designed to be a liquidity backstop for members with very strong policy frameworks and fundamentals, which face potential, moderate, short-term liquidity needs because of external shocks that generate “balance of payment difficulties” — a surge in dollar outflows caused by fleeing jittery investors that tends to depreciate the local currency and drive inflation higher.

Diokno pointed out that the Philippine economy experienced net dollar inflows amounting to $7.84 billion as end-December 2019, which was the highest level recorded over the last seven years.

Despite the challenges caused by the ongoing pandemic, the central bank chief noted that the institution continues to forecast fairly robust net dollar inflows of $3.7 billion this year.

“Secondly, the peso is stable,” he said, pointing out that from the start of the year to May 15, the local currency has outperformed most of its peers in the region, having experienced the least depreciation.

The peso, he said, is second only to the New Taiwan Dollar, which is the only currency to have appreciated versus the US greenback so far this year.

Diokno also pointed to the Philippines’ dollar reserves held by the central bank, describing the total amount as “hefty”, at $89 billion as of end-March 2020, equivalent to 5.3 times the short-term debt based on original maturity and 3.8 times based on residual maturity.

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“It is adequate to cover 7.9 months of imports of goods and services and payments of primary income,” he said, adding that central bank planners see gross dollar reserves rising to “the neighborhood of $93 billion by the end of 2020.”

Finally, Diokno said the ratio of government’s total debt as a percentage of annual economic output remains “manageable”.

“As a percentage of [gross domestic product], debt was estimated at below 40 percent as of end-2019,” Diokno said — a level that will give the government enough headroom to borrow funding for the massive spending needed to restart the Philippine economy after the pandemic.

Edited by TSB

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